Draft guidance applies ERM principles to ESG risk

By Ken Tysiac

Recently issued supplemental draft guidance is designed to help organizations apply enterprise risk management (ERM) principles to environmental, social, and governance (ESG)-related risks.

The draft would be a supplement to the Enterprise Risk Management — Integrating With Strategy and Performance framework that was updated by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2017.

COSO is a group of five sponsoring organizations, including the AICPA, that provides thought leadership on ERM, internal control, and fraud deterrence. The draft supplemental guidance was issued by COSO and the World Business Council for Sustainable Development (WBCSD).

The supplemental draft discusses:

  • Methods to overcome ESG-related risk challenges, including identifying and assessing the severity of risks with uncertain financial consequences.
  • Innovative responses for addressing ESG-related risks and seizing opportunities.

“As ESG-related risks are becoming more widespread, organizations need to ensure they have processes in place for identifying, assessing, and managing these complex entity-level risks and opportunities,” said COSO Chairman Paul Sobel. “As with any group of risks, integrating ESG-related risks into ERM enables organizations to realize long-term value.”

The draft guidance is intended to help organizations respond to ESG-related risks ranging from extreme weather events to product safety recalls. WBCSD CEO Peter Bakker said companies that have a strong grasp on their risks make better business decisions.

“With this work, we’re going to help drive positive change in corporate governance,” Bakker said in a news release. “Better regulation will take time, but the work we’re doing with COSO that embraces the COSO risk management framework is something that can have a massive impact.”

Comments on the draft will be accepted through June 30 and can be emailed to risk@wbcsd.org.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is a JofA editorial director.

SPONSORED REPORT

Tax reform changes are now in effect

With all the recent tax law changes, this year it’s more important than ever to make sure your clients’ tax situations are squared away before year end. This report provides necessary guidance to ensure 2019 starts without a hitch.

PODCAST

Using drones to enhance audits

Hermann Sidhu, CPA, global assurance digital leader at EY, walks us through EY’s exciting new project to use drones to help audit large warehouses and outdoor inventories.